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A federal district court judge in Tennessee has denied LifePoint Health's motion to dismiss a proposed class action accusing the company of mismanaging its 401(k) plan. As a result of the ruling, current and former LifePoint employees can proceed with their claims that the company and its fiduciaries violated the Employee Retirement Income Security Act (ERISA) by charging excessive fees and improperly using forfeited 401(k) contributions.
LifePoint Health, a Tennessee company, operates over 300 hospitals and healthcare facilities across the nation. An estimated 41,000–55,000 employees participate in the LifePoint Health Retirement Plan, which has assets exceeding $1 billion. Due to the number of participants and amount of its assets, the LifePoint plan is one of the largest defined contribution plans in the United States.
Six former and current employees filed suit against LifePoint on behalf of all individuals who participated in the plan since August 15, 2018. The proposed class members allege that Lifepoint, its Board of Directors, the Retirement Committee, and other fiduciaries breached their duties of prudence and loyalty under ERISA, as well as failed to monitor the plan properly.
One of the central claims in the lawsuit focuses on allegedly excessive recordkeeping and administrative fees. Between 2018 and 2021, each worker paid an average of $48.57 per year in fees, which is almost double the $25.58 per year that participants in comparable plans with similar services paid. During this timeframe, the plan used recordkeepers from Wells Fargo, Prudential, and Vanguard, which the workers allege ran up fees totaling $2.6 million in 2020.
The workers also claimed that LifePoint failed to engage in regular competitive bidding for administrative plan services through the request for proposal (RFP) process. Instead, fees remained the same from 2016 to 2020, while other employers with large 401(k) plans reduced fees by 30% or more through reviews and bidding.
The second major claim involves the alleged misuse of forfeited 401(k) funds. When employees leave before their employer's matching funds are fully vested, they forfeit those funds back to the plan. Forfeited funds can amount to millions of dollars annually. The plan documents stated that the funds were to be used to reduce future company contributions or pay administrative expenses. However, LifePoint consistently used the forfeited funds to reduce its matching contributions to employee accounts, but not to defray high administrative fees. Furthermore, after 2021, the plan summary omitted language allowing forfeited funds to be used to cover administrative expenses.
LifePoint filed a motion to dismiss, arguing that the workers failed to show the administrative fees were unreasonable. The company also alleged that the valuable customized services the plan offered justified the higher fees.
The judge denied Lifepoint's motion to dismiss and rejected its arguments in favor of dismissal. The judge's order pointed to the detailed, plan-specific evidence that the workers produced to state a valid legal claim. The judge further stated that the combination of high administrative fees, lack of competitive bidding, consistent pricing, and specific forfeiture practices was sufficient to allege plausible breaches of fiduciary duty. Likewise, the judge refused to dismiss the workers' claims, alleging failure to monitor the plan.
This case is indicative of an increasing number of ERISA claims targeting larger 401(k) plans for excessive administrative fees and forfeiture practices. Courts are overwhelmingly allowing cases with sufficient documentation backing up their allegations to overcome early motions to dismiss. The court's refusal to dismiss this case paves the way for discovery, which can reveal internal emails, vendor contracts, and other records documenting decision-making. If the workers prevail and the court certifies the proposed claim, LifePoint could face significant liability.
For other companies maintaining large retirement plans, the LifePoint case serves as a reminder that, as fiduciaries, they should use their bargaining power to diligently review contracts, fee structures, and the use of plan assets. These duties are legal obligations under ERISA, and failure to fulfill them can result in severe financial consequences.
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